Companies up cash buffers in uncertain year

ONGOING uncertainty over the Eurozone’s future is forcing UK businesses to build up their cash reserves going into the New Year, according to new research.

To combat the tighter lending conditions that are typical of nervous markets, the UK’s top 100 corporates have added a combined £20bn to their balance sheets – almost a 20 per cent increase on the amount they added last year – according to a report by law firm Allen & Overy.

Across 12 major economies, including the US, Japan, Germany and France, the average increase in cash over 2011 was 17 per cent.

Balance sheets are also strong because of the lack of appetite for M&A during the year, with emerging and Asian markets looking well-placed to drive M&A activity in 2012. Brazil is particularly well positioned, with cash available to the biggest firms having grown 94 per cent in the last two years.

“In the absence of readily available acquisition debt finance for deals, and a lack of confidence to commit to significant M&A activity, corporates are taking the opportunity to shore up their balance sheets and provide a buffer against wider market nervousness,” said corporate partner Richard Hough.